What is the CARES Act

The CARES Act (Coronavirus Aid, Relief, and Economic Security) It was approved by the United States Congress and President Donald Trump on March 27, 2020.

This law approves a stimulus worth 2 billion dollars to mitigate the impact of the economic recession caused by the Coronavirus (COVID-19). Read on to find out how you can get help.

Most forecasts predict that the US economy is already in or headed for a recession. And for that reason, responsible politicians crafted legislation dedicating historic government funding to support businesses large and small, industries, individuals and families, as well as the health care system.

Characteristics of the CARES Act

With more than 2 billion dollars, this It is the largest rescue package in the history of the United States.. For comparison, the 2009 Recovery Act was $831 billion. It is expected that the CARES Act have a major impact on the US economy and the effort to combat the Coronavirus.

The CARES Act It directly reaches many industries, but not in equal parts. Some sectors need more help than others:

Beneficiaries of the CARES Act
Beneficiaries of the CARES Act

The way in which the CARES Act implements aid varies depending on the characteristics of each economic sector. The coronavirus relief of 2.3 billion dollars is distributed as follows:

Funding sources
Funding sources

Paycheck Protection Program (PPP)

The Paycheck Protection Program, also known as PPP, applies to any business, non-profit organization, veterans organization, or tribal business that has fewer than 500 employees. Also to companies with more than 500 employees that are under the Small Business Administration standard.

The main benefit is that they can receive a “business interruption” loan of up to 2.5 times their average monthly payroll, up to a maximum of $10 million.

Paycheck Protection Program loans can be used to cover payroll, benefits, and wages, as well as interest, rent, and utility payments.

Fees are waived, and no collateral or personal guarantees are required. Payments are deferred for a minimum of six months, up to a year, and there are no prepayment penalties.

Loan principal is forgiven up to the full cost of payroll, mortgage interest, rent, utility payments, and any additional wages. These expenses must have been incurred within eight weeks of origination. However, this amount can be reduced proportionally in the face of any eventual reduction in the average number of employees.

Economic Injury Disaster Loan Program

This old program, also known as EIDL (Economic Injury Disaster Loans) was reinforced. Now provides $10,000 in emergency relief for small businesses impacted by COVID-19. These loans do not have to be repaid, effectively making them a grant.

For EIDL loans, you can borrow up to $200,000 without a personal guarantee.

Unemployment insurance due to the coronavirus pandemic

The stimulus plan is extended, both due to the decrease in requirements and the increase in benefits related to the current emergency.

Eligibility for unemployment benefits is extended to those who would not otherwise qualify if their job loss was not related to the COVID-19 pandemic.

This includes contractors and the self-employed, those whose occupation has been affected, those only seeking part-time employment, those with insufficient employment history, or anyone who would not otherwise qualify.

However, those who have the ability to continue their work remotely over the Internet or who already have paid sick leave or other leave benefits due to work interruption are specifically excepted.

The scheme extends the duration of regular unemployment benefits from 26 weeks to up to 39 weeks. Extends payment of benefits to the first week of unemployment as well (where not prohibited by state law). It also funds a new benefit from Federal Pandemic Unemployment Compensation of $600 per week, in addition to the regular unemployment benefit, until the end of July 2020.

The CARES Act also established the program Pandemic Emergency Unemployment Compensation (PEUC or Pandemic Emergency Unemployment Compensation)that allows workers who have exhausted their unemployment compensation benefits to receive an additional 13 weeks of benefits, if they are able to work.

Besides, the Pandemic Unemployment Assistance (PUA or Pandemic Unemployment Assistance) extends benefits to self-employed workers, independent workers and independent contractors.

For workers who remain employed but with reduced hours, the stimulus plan funds 100% of short-term compensation benefits. In addition, it offers incentives to states that do not have these benefits to apply them.

Changes in taxes and credits

For taxpayers:

The CARES Act creates a tax refund of $1,200 per taxpayer plus $500 per child.

The amount of the refund is gradually reduced for individuals earning more than $75,000 per year, $112,500 for heads of households, and $150,000 for joint filers.

Taxpayer refunds are gradually reduced as income increases. They drop to zero when one earns more than $99,000 a year as a single filer, and $198,000 for joint filers.

Take from retirement funds

People can take special disbursements and loans from retirement funds with tax advantages of up to 100,000 dollars thanks to the new CARES Act.

In addition, it is exempt from compliance with the rules of “Minimum Required Distribution” for the plans 401k and the individual retirement accounts (IRA or Individual retirement account).

Waives the 10% penalty on early withdrawals of up to $100,000 from 401(k). Account holders will be able to pay back distributions over the next three years and will be allowed to make additional contributions for this purpose.

For taxpayers, it allows an above-the-line Adjusted Gross Income (AGI) deduction of up to $300 for charitable contributions and relaxes other limits on those contributions.

The CARES Act also includes some protections for consumers and some borrowers. We’re talking about forbearances and foreclosure moratoriums for all federally backed mortgages. There is also a moratorium on evictions for rental properties with mortgages backed by the federal government or participating in various federal housing subsidy programs.

For businesses

The new one CARES Act create a Employee Retention Credit against labor taxes. The idea is to retain and pay employees during any quarter in which operations are partially or fully suspended due to the Coronavirus.

This credit does not apply to businesses that already receive the “interruption of operations” loan mentioned above.

50% of payroll tax payments for 2020 will be due in 2021, and the other 50% in 2022. Operating losses can be carried forward for up to five years.

Taxes on alcohol used to produce hand sanitizer will be suspended in 2020.

Health services

The CARE law provides for an outlay to cover the direct needs of the health system to deal with the pandemic, as well as funding for treatment and prevention.

Medicare reimbursements, grants and other direct federal payments are expected, to the tune of $100 billion.

CARE allocates $27 billion for spending on testing, developing vaccines and medical treatment devices, including $16 billion in purchases for the National Strategic Reserve.

As if that were not enough, numerous laws, rules for payment of Medicare and drug approval requirements to enable greater emergency response capacity.

It requires health insurers to cover testing for the virus as well as treatments and vaccines to be developed.

Protects health care providers from liability when they volunteer to fight the epidemic across state lines. Increases funds for the training of medical personnel and for modernization programs.

Economic Stabilization Plan

In order to provide liquidity to hard-hit businesses and industries, the CARES Act plan allocates $500 billion for loans and guarantees.

Of that money, $25 billion goes to passenger airlines, $4 billion to air cargo companies, and $17 billion to companies deemed critical to national security. all managed by the Secretary of the Treasury.

The remaining $454 billion is allocated to loan programs and facilities operated by the Federal Reserve to support other businesses, states and municipalities.

Difference with “interruption of operations loans”

The main difference is that these large loans are not forgivable.

What’s more, the CARES Act imposes certain conditions on these loans made by the Treasury. Among them: share buybacks, dividend payments and cutting the workforce by more than 10% are prohibited.

Compensation for employees earning more than $425,000 annually will be capped. And severance packages will be capped at two years of compensation.

Compensation for employees earning more than $3 million annually will be capped at $3 million plus half of any amount over $3 million in their 2019 compensation.

Any company owned by the president, vice president, or members of Congress are not eligible for these loans.

Loans to medium-sized businesses (500 to 1,000 employees) include conditions that they not outsource jobs, not hire employees outside the US, not break union contracts, and remain neutral with respect to union organizing.

State and local governments will receive up to $150 billion in assistance through the new Coronavirus Relief Fund.

Relief fund to state and local governments

$3 billion is set aside for federally administered territories and $8 billion for tribal governments.

Payments to state and local governments are divided proportionally based on population. These are large, open-ended block grants that are earmarked for expenses related to epidemic control and economic damage mitigation.

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